The command palette seems like the sort of thing that'll have more power than I'm currently giving it credit for. How do you create a file outside of the directory that you're currently editing?

The Advanced New File [1] plugin lets you type a relative file name.

[1] https://github.com/dkundel/vscode-new-file

If you create a new file, when pressing save, you get a save dialog. In there you can navigate to the folder where you want to save the file.

I'm aware. If you follow the thread, we're talking specifically about creating a new file using the command pallet. Also, I mentioned above that, while I'm aware of the ability to create a file using finder, I'd rather not.